Mci: the Fraud Continues

Case 1: The Fraud Continues

July 17, 2011

Abstract

Focusing on the internal control weaknesses that existed at MCI, which contributed to the commission of Walt Pavlo’s famous multi-million dollar fraud. Discussing the approach that should have been taken if fraud was suspected and applying one theory related to crime causation of this case. As well as critiquing the ethical behavior of Pavlo and MCI – discussing what actions could have been taken to prevent the crime.

1. Discuss the internal control weaknesses that existed at MCI that contributed to the commission of this fraud.

When we listen to Pavlo and outside sources, like ethics professor Stephen Henn in his book “Business Ethics,” we hear of employees concealing bad debt in Pavlo’s department. It seems that “unethical decisions were commonplace” (Henn 2009). We see an upper management that, when notified of large amounts of bad debt, completely denied any problem. Pavlo states, “I sent a memo to senior staff telling them that we had about $180 million of bad debt…. and asking how we were going to address it…The response was that the bad debt budget…was going to remain at $15 million and that we would just have to work through whatever issues we had.” (Jacka 2004) An ‘Internal Auditor” article from 2004 goes on to report that in one account “a customer who owed MCI US $100 million was allowed to sign a promissory note, which turned the receivable into a short-term asset.” These examples are perhaps the most unbelievable from the case. We see a management that refuses to acknowledge large amounts of bad assets and multiple employees working to conceal large amounts of bad debt.

And throughout the hearings and our case study, we have Wanserski denying all these memos and findings. And we find an email to Pavlo in February 2007 asking “someone [to] explain the deal…with the $5.5 million of WorldCom [money] posted to Tel-Central.” And while these memos from Pavlo warning of large amounts of new...